Transfer Pricing, Social Factors and Financial Performance of Universal Companies in Nigeria

Abstract

Research into transfer pricing and the variables influencing its prevalence and scope in a setting such as Nigeria, a developing country, is fascinating. Understanding these elements is crucial for regulatory agencies in Nigeria or other developing nations to effectively monitor businesses and their transfer pricing operations. This study then examined transfer pricing, social factors and financial performance of universal companies in Nigeria. The study was predicated on agency theory to assess the conflict of interest that arises amidst the investors and executives over the practice of transfer pricing. Eighteen (18) listed universal companies were sampled. Panel regression technique was used to analyse the hypothesis to arrive at interpretable findings. The independent variables were board size, board independence and related party transactions while the dependent variable was return on assets. The control variables were firm size and leverage. Findings showed only RPT were not significantly associated with financial performance. However, the overall model was significant as revealed by the p-value of 0.000215 which is less than 0.05. It can be concluded that transfer pricing and social factors identified in this study have explanatory power to influence the financial performance of universal companies in Nigeria.As a result, it is recommended that regulators should expand their rules to increase the disclosure of transfer pricing practices by universal listed companies, and to expand controls and monitoring over transfer pricing in companies through improving corporate governance mechanisms, including increasing the power of smaller shareholders and independent board members in approving such transactions.